Page 85 - Azerbaijan State University of Economics

Iurii Korobeinikov: Dutch disease and Venezuelan economics in retrospective

sector with increase in incomes. The reason is possibly due to higher demand on products and

services from the side of oil sector beneficiaries. Why this demand doesn’t help to the local

manufacturers? The answer is that local manufacturing goods became more expensive than foreign

analogues. The reason for that is described in the Stage 3 below. While increase in incomes of

employees and owners of oil sector leads to increase in consumption of imported manufacturing

goods, the services are usually provided only by domestic service industry and thus, are not affected.

Due to above mentioned reasons labor force and capital from lagging (manufacturing)

sector migrate to booming (oil) sector and services sector. The shares of migration between these

two sectors depend on local features.

Fig.3. Migration of labor force and capital from lagging sector to booming and services sectors.

Source: Korobeinikov 2014

Stage 3: currency appreciation

Due to total increase in foreign currency inflow to the country’s economy the exchange

rate of local currency growth meaning the enforcement of local currency takes place.

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